Of course, the $100,000 in cash will come in handy because if you win the 2017 HGTV Smart home, because you will need to be prepared for a hefty federal individual income tax bill and, depending on where you live, a state individual income tax bill—both of which I have estimated in this post.

This analysis excludes the multitude of other taxes such as any real estate, deed or transfer taxes and, most especially, the property tax which you pay year, after year, after year . . . well, you get the picture.

As they state in the rules: “All costs, taxes, fees, and expenses associated with a prize or the acceptance and use of any element of a prize not specifically addressed above are the sole responsibility of the winner. All federal, state, and local taxes on prize are winner’s responsibility. The Grand Prize Winner will be issued a 1099 tax form for the ARV of the prize.”

Overall, the federal income tax bill alone comes to a whopping $533,530 (see assumptions below) or 35.3 percent of the prize value. If you plan on keeping this home, best be prepared to take on a second job or take out a home equity loan to pay Uncle Sam as the $100,000 in cash won’t cover it (no wonder Quicken Loans is sponsoring the cash award . . . they will be right at your side when you realize you need a loan).

Calculating the state income tax owed is much more complicated. Arizona does have a general individual income tax. As a result, your tax bill will first be determined by Arizona’s individual income tax.

Your home state provides a tax credit for income taxes paid to another state so you may owe additional income taxes if your home state levies a higher tax bill. If you think that sounds complicated, just imagine what professional athletes go through paying the "Jock Tax" (income tax) to every state they play in.

Table 1 shows the state individual income tax bill that would be owed to Arizona ($65,257) and any additional taxes owed to your home state (if different). If you live in the nine states that do not have an individual income tax--Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming—then your tax bill is simply the combined bill for Uncle Sam and Arizona ($598,787). There are 10 other states whose income tax bills are lower than Arizona’s income tax bill so you would not owe anything there as well.

However, 31 states have bigger income tax bills than Arizona so if you live in one of those states expect to pay more. The worst state to live in is California with an additional tax bill of $111,033 which brings the combined state and local tax bill to $709,820, or 47 percent of the prize value. Following closely behind are Hawaii (combined tax bill of $687,229, 45.5 percent of the prize value) and Minnesota (combined tax bill of $671,993, 44.5 percent of the prize value).

Fortunately, HGTV does provide an escape hatch by offering cash in lieu of taking possession of the home worth $670,000 and you keep the $100,000 in cash, and the Mercedes-Benz for a total value of $849,040. Again, as shown in Table 2, the worst states to live in are the same as above.

There is no clear-cut answer as to whether or not to keep the house, take the house and sell it, or opt for the cash value. If you look at the last two options, you might net more after-taxes if you take the house and sell it yourself—of course you hope the appraised value is close to the real market value at the time of sale which adds a degree of riskiness. Additionally, you may issues with the Capital Gains tax which will further reduce the attractiveness of the sell-it-yourself option.

If you decide to keep the house, at least Arizona has a low overall tax burden you can enjoy. I’m in the midst of updating all of the 50 state tax burden blogs with the latest data, but I went ahead and included Arizona below since it will take me some time to get to it otherwise.

Arizona has the Sixteenth Lowest Tax Burden in the Nation for 2015

In Fiscal Year (FY) 2015, Arizona collected $23.1 billion in state and local taxes. While this is an impressive sum of money, it tells us little about whether or not the average Arizona taxpayer can afford this level of taxation.

As shown in Chart 1, Arizona’s state and local tax burden (tax collections divided by private sector personal income) was the 16th lowest in the nation for FY 2015 at 13.1 percent—or -9 percent below the national average of 14.4 percent.

Of course, as shown in Chart 4, the tax burdens for local government can vary just as much as they do among the 50 states. As such, we have also calculated the local government tax burden for every county in Arizona—this includes every taxing jurisdiction within the geographic county borders whether it is a city, a special district, or county government itself.

Arizona only has 15 counties and are listed below from highest to lowest local government tax burden:

Gila County, AZ (10.1 percent)

La Paz County, AZ (8.7 percent)

Navajo County, AZ (8.5 percent)

Cochise County, AZ (7.4 percent)

Yavapai County, AZ (7.2 percent)

Mohave County, AZ (6.8 percent)

Coconino County, AZ (6.7 percent)

Yuma County, AZ (6.4 percent)

Santa Cruz County, AZ (6.3 percent)

Apache County, AZ (6.1 percent)

Pima County, AZ (6 percent)

Greenlee County, AZ (5.6 percent)

Graham County, AZ (5.1 percent)

Pinal County, AZ (5 percent)

Maricopa County, AZ (4.6 percent)

Interestingly, Maricopa County, where Scottsdale is located, has the lowest local tax burden in Arizona at 4.6 percent. In particular, that means a lower property tax burden which, after the income tax, is the next most onerous tax the HGTV Smart Home winner will face.

J. Scott Moody

Scott has nearly 20 years of experience as a public policy economist. He is the author, co-author and editor of over 180 studies and books. His professional experience also includes positions at the American Conservative Union Foundation, Granite Institute, Federalism In Action, Maine Heritage Policy Center, Tax Foundation, and Heritage Foundation.